The total number of mutual fund SIP accounts in India stood at 8.2 crore in February 2024. SIP investments are extremely popular in India. However, several myths surrounding SIPs keep investors from exploring their fullest potential.
Clearing seven key misconceptions surrounding SIPs:
The following seven points can help you clear seven common misconceptions about SIP investments:
- Mutual fund houses do not charge a penalty for missed SIP instalments: One of the many myths surrounding SIP investments is the myth of mutual fund houses charging a “penalty” from investors who miss an SIP instalment. Your SIP investment does not become inactive when you miss one or two SIP instalments, and you are not liable to pay a penalty for missing these instalments. You must note, however, that banks could charge you for not honouring auto-debit payments. If you miss your SIP instalments for three consecutive months, however, the mutual fund house can cancel your SIP investment.
- You can start an SIP for all categories of mutual fund schemes: Certain first-time investors believe that they should invest only in equity funds through SIPs. However, investing in debt funds through SIPs can be beneficial to investors too. Investing your savings in a liquid mutual fund, for instance, can help you park your savings in best mutual fund scheme for a short period before you decide to invest it in another scheme.
- SIPs cater to all categories of mutual fund investors: Another popular myth says that SIPs are only meant for small investors since they offer them the flexibility of starting with lower amounts. However, this is not true as mutual fund houses do not apply any cap on the amount that can be invested. You can invest as high an amount as you want in a mutual fund scheme.
- SIPs do not offer guaranteed returns: SIP investments, unlike FDs, do not offer guaranteed returns to the investor. An SIP investment can pose a moderate-to-high risk to investors depending on the type of mutual fund in which they invest. You must, therefore, not consider SIP investments as schemes that offer guaranteed returns.
- SIP investments can incur heavy losses: Investors often believe that an SIP investment can never incur loss, which is a myth. When markets decline, even SIP investments can incur losses. It is true that they help investors average out their losses through regular investments over a long time period.
- You can change your SIP amount or date after starting an SIP: It’s a common misconception that investors cannot change their SIP date or amount after starting an SIP investment. You can alter your SIP amount or date of investment at any time.
- Weekly SIPs are not always better than monthly SIPs: SIPs are extremely popular modes of investment since they help investors average out their losses by investing consistently in a scheme over time. However, you cannot increase your returns by increasing the frequency of SIP investments. This is a recent myth that a significant number of investors believe. You can earn significant returns by investing monthly too.
You must use an online SIP calculator to make the most of your SIP investments. Doing so can help you decide on the right investment amount and horizon depending on your risk appetite.
Also Read: Mutual Funds Vs. Stocks: A Guide For The New Investors
